The North Atlantic Treaty Organisation (NATO) expanded by three new members in 1999 and thus now has nineteen members. Although most people view this to be a benefit for the future of NATO as it should enhance their strength and credibility there are those who view that it will lead to further exploitation in defence budget sharing and an allocative efficiency. It is thought that due to issues such as Globalisation the world is becoming more interlinked with organisations such as NATO and the UN comprising of more and more members. It is feared that this expansion will lead to problems with free riders taking advantage of the ever-increasing availability of the public goods offered by organisations such as NATO. There is also a case that producer groups within member countries benefit more than the actual nation states as the benefits to them are much more assured and accessible. Politicians are an example of a group, which can benefit greatly from international collaboration, as it is a tool, which can help them, gain re-election.
The first real concerns over the economics of alliances were raised in Mancur Olson and Richard Zeckhauser their writings in 1966. This raises the point that in international institutions such as NATO the smaller allies are relying on the larger allies to pay the vast amount of the defence budget and thus free riding, this became known as the exploitation hypothesis. Sandler and Hartley point out a clear example of this exploitation, as in 1970 the USA contributed 75% on NATO's defence spending with the next closest allies which included the UK, France and Germany only contributing 6%. The exploitation becomes evident when you discover that the USA only received 35% of NATO's defence benefits. Olson and Zeckhauser felt that the NATO members would never be able to gain allocative efficiency under the system they were using for defence contributions.
Olson and Zeckhauser developed a test for the exploitation hypothesis this was done by dividing military expenditure by GDP and then adjusting by the ability to pay. Then those states paying a disproportionate amount of their GDP were viewed to have a heavy defence burden on them.
On the other hand though it is important to note though that the capabilities of countries such as the USA to spend on defence are much greater than many other countries and thus this may mean that they have a social responsibility to contribute more than others to the NATO defence budget. It could also be the case that if these countries are helped now then they will have the ability to pay more in the future and help to reduce the defence burden on the larger allies.
The table above shows clear exploitation of the USA by many of the smaller allies as their benefit shares are more than their burdens.
(Tables from Sandler and Hartley 1999)
The table above shows even more examples which back up Olson and Zeckhauser's allocation hypothesis, Canada being a clear and constant figure in this case where consistently every year their average benefit share is much greater than their defence burden e.g. in 1970 their burden was 1.98% whilst their benefit share was 25.32%.
There are also efficiency problems, which arise when taking into account factors such as the indirect benefits of NATO's actions (especially over the 1990's). This is to do with issues such as their efforts towards peacekeeping in areas such as Eastern Europe e.g. Bosnia. These actions have helped to increase the security in the area and help it develop as a whole both economically and politically. Thee efficiency problem comes into effect when you take into account the...